frica is becoming an increasingly important factor in global energy markets. By the end of the decade, the continent's significance will rise dramatically. Africa currently contributes 12 percent of the world's liquid hydrocarbon production, and one in four barrels of oil discovered outside of the U.S. and Canada between 2000 and 2004 came from Africa. IHS Energy, an oil and gas consulting firm, calculates that Africa will supply 30 percent of the world's growth in hydrocarbon production by 2010. West Africa's low-sulfur oil is highly desirable for environmental reasons, is readily transported to the eastern U.S. seaboard, and can be easily processed by China's refineries.

Fifteen percent of U.S. oil imports come from Africa; by 2010 this could reach 20 percent. In this decade, US$50 billion will be invested in the Gulf of Guinea's energy sector, according to a recent report by the Council on Foreign Relations. While U.S. companies will account for 40 percent of this investment, other major players -- particularly state-owned energy companies -- will play a critical role in determining the shape of Africa's energy industry. From 1995 to 2005, national oil companies more than doubled the number of licenses they hold in Africa, from 95 to 216. China's energy firms are the largest state-owned investors, but India has also made significant investments and is looking to expand its presence in the region.

However, political instability, criminal syndicates and terrorism threaten growth in the region. These factors are the main reason the region's hydrocarbon industry has not fully developed in the past, but as China and India demand more oil and gas to fuel their rising economies and as major oil fields reach maturity in other regions, Africa's oil and gas supplies have become more attractive investments.

The rise of Africa's energy industry is changing the geopolitical landscape of the region. The West has found its leverage in the region challenged by China's willingness to invest in oil-producing states in order to ensure Beijing's energy security. For instance, a $2 billion low-interest loan from China has all but scuttled the International Monetary Fund's (I.M.F.) attempts to tie economic assistance to reform in Angola. In other areas, China and the West find their interests aligned, such as on the north-south peace accord in Sudan. In the coming years, Washington will be forced to adjust its policies toward Africa in order to compensate for China's rising influence.

China's Influence in Africa

China has been involved in Africa since before the 1960s, but, recently, the nature and level of its involvement has changed. China is primarily invested in Africa in order to secure access to the region's natural resources to fuel its expanding economy. Beijing is outbidding Western contractors on infrastructure projects, providing soft loans, and using political means to increase its competitive advantage in acquiring natural resource assets in Africa. [See: "Sino-U.S. Energy Competition in Africa"]

China's deputy foreign minister famously told the New York Times, "Business is business. We try to separate politics from business." This statement is not strictly true; China uses politics for different aims than does the West. China uses its geopolitical position in order to gain access to natural resources around the world without regard to the domestic political situation where these resources are located, making China an attractive partner for many countries marginalized by the Western powers for internal strife, corruption, and human rights violations.

India, South Korea, Malaysia and Brazil are following China's lead. China, however, also has an asset that these other states cannot exploit -- a permanent seat on the U.N. Security Council. Beijing's willingness to use its seat to protect states from international sanctions is welcomed in a region not lacking in egregious violations of international law and is undermining Washington's influence in Africa. This can be seen in Sudan, where Beijing has helped to prevent any meaningful Security Council resolution from emerging that would help to end the conflict in the Darfur region. [See: "The Darfur Question at a Time of Increasing U.S.-China Competition"]

Beijing has not shied from investing in countries that are being marginalized by the West in order to secure access to energy sources. In other regions, China has repeatedly lost contracts to large, multinational corporations. Russia's Siberian reserves were once thought to be all but wrapped up in a deal for China, but now Japan may win the contract. The Chinese National Offshore Oil Corporation's (C.N.O.O.C.) attempt to gain control of Unocal collapsed under pressure from the U.S. Congress. Such failures have pushed Beijing to take risks in unstable countries that it may not otherwise pursue, in part to avoid competition from the major multinationals.

The Financial Times reported on February 28 that Nigeria is shifting its sourcing for military equipment to China because U.S. concerns about corruption within the Nigerian security forces have delayed the delivery of equipment. In July 2005, China signed an $800 million crude oil agreement with Nigeria, and Beijing is considering $7 billion worth of investments in Nigeria. Ethiopia called China "its most reliable [trading] partner" after Western states criticized its recent election irregularities and its continuing border dispute with Eritrea. A Chinese company, earlier this month, started drilling the first exploration well in the Gambella basin, west Ethiopia. Angola has delayed implementing I.M.F. recommendations after receiving a $2 billion soft loan from China. China recently won the rights to oil-exploration blocks in Angola away from Total and Shell.

China, now the world's second-largest importer of oil, imports 28 percent of its oil from Africa, mostly from Sudan, Angola, Congo, and Nigeria. In each of these countries, a similar pattern emerges: China moves in after Western companies are forced to pull out because of domestic pressure, thus undermining the ability of Western countries to use economic isolation and economic aid to influence the policies of the oil-producing countries. China, however, is also buying oil that would otherwise be taken off the global market, which effectively reduces the price of oil for all oil-importing countries.

Competition and Cooperation in Sudan

China's role in Sudan is both in conflict and alignment with the West's agenda. Since 1996, China has invested heavily in Sudan as Western companies were forced to pull out or put their investments on hold. In 1996, C.N.P.C. took a 40 percent interest in the Heglig and Unity oil fields as part of the Greater Nile Petroleum Operating Company, in which India and Malaysia are also investors. In 1998, it participated in building a 1500-kilometer (930 miles) long pipeline from these fields to the Red Sea.

China's Petroleum Engineering Construction Group is constructing a $215 million export tanker terminal in the Port of Sudan, where a pipeline being built by another Chinese firm from the Melut Basin terminates. C.N.P.C. also owns most of an oil field in Sudan's Darfur region. Beijing's investments have helped to double Sudan's proven reserves in the past three years, now estimated at 563 million barrels, and double production in the past two years, now at 500,000 bpd. China currently receives seven percent of its oil imports from Sudan, and it is Sudan's second-largest foreign investor with about $4 billion invested.

Estimates reach as high as 80 percent for the amount of revenue generated by Sudan's oil fields that have been invested in fighting its recently resolved north-south civil war, the ongoing conflict in Darfur, and the mounting conflict in the country's northeast. China is also Sudan's largest arms supplier. Chinese-made tanks, fighter planes, bombers, helicopters, machine guns and rocket-propelled grenades have been purchased by the Sudanese government. China has also threatened to use its veto on the U.N. Security Council to protect Khartoum from sanctions and has been able to water down every resolution on Darfur in order to protect its interests in Sudan. Washington has called the conflict in Darfur "genocide" and has seen its ability to effect change in the region limited by Beijing.

In January 2006, a U.S. Energy Department report said China's tolerance of despotic regimes could undermine Washington's strategic goal to spread democracy and free trade. The report warns that China may be tempted to intervene in order to protect its investments.

China's thirst for oil is limiting Washington's influence in Khartoum, but there are some areas of agreement between Beijing and the West in regards to Sudan's future. The historic peace-deal that ended the 21-year north-south civil war has allowed for the return of foreign investors that were forced out due to domestic pressures and politics. France's Total, Marathon of the U.S., and the Kuwait Foreign Petroleum Company renewed their exploration rights in the south of the country in recent months. While the new competition may make Beijing nervous, it also means that Beijing and the West now have a similar stake in ensuring that the peace agreement holds.

Angola: Competing Investment Strategies

In 2004, China's Eximbank approved a $2 billion line of credit to Angola. The loan is being used to rebuild Angola's infrastructure, ruined by the 27-year civil war that ended in 2002. A large portion of the contracts has gone to Chinese firms. For example, the Benguela Railway is being refurbished for $300 to $500 million. Chinese firms have also won contracts to refurbish two other rail lines, government buildings, and a new airport in Luanda.

Angola's 25 billion barrels of proven crude reserves make it an attractive target for China's aid. Already pumping 1.6 million bpd, the infrastructure improvements should help to increase this to two million by 2010. China's advancements have been welcomed by President Jose Eduardo dos Santos' government, which has historically been wary of bowing to pressures to introduce more transparency to the country's oil industry.

Global Witness estimates that between 1997 and 2001, $8.45 billion of public money was unaccounted for in Angola. The country is still without a formal monitoring agreement with the I.M.F. because it has yet to fulfill most of the recommendations of a 2004 I.M.F study. With the price of oil hovering above $60 per barrel, China's $2 billion loan, as well as interest from India and Brazil in making similar loans, Angola is unlikely to make significant concessions to the I.M.F.

Angola has also been willing to use its oil for political aims. Many observers believe that Total lost its lead-operator rights to Block 3/05 because of France's criminal prosecution of an oil-for-arms case involving the dos Santos government in the 1990s. The biggest owner on France's relinquished block is a joint venture between China's Sinopec and Angola's state-owned Sonangol. Chinese investors have also assumed a portion of Block 18 relinquished by Shell.

China's investments in Angola are a major threat to the West's interests in the country, as evidenced by the limited influence of the I.M.F. Nevertheless, Western companies are still Angola's largest investors. ChevronTexaco and Exxon Mobil each produce about 500,000 bpd, and BP and Total both have major projects expected to come on-stream soon. There is little chance that Angola will turn its back completely on the West in the midterm.

Nigeria's Instability

In Nigeria, political corruption, criminal networks, violent Islamist groups, and domestic rebels threaten to take the world's eighth-largest oil exporter off the market. It is estimated that 70,000 to 300,000 barrels of oil are stolen daily in Nigeria. Even at the low end of this estimate, this would generate more than $1.5 billion every year -- more than enough capital to buy arms and political influence and threaten the government's survival. Another 500,000 bpd have been taken off the market by the recent kidnappings and violence perpetuated by the Movement for the Emancipation of the People of the Niger Delta. [See: "Intelligence Brief: Iran, Nigeria"]

In the midst of this instability, the world's largest and second-largest oil importers are playing an increasingly dangerous game of power politics. For both Washington and Beijing, the nightmare of rebel groups halting oil extraction in the delta -- which will dry up revenues on which the northern elites depend, potentially leading to a northern Muslim general ousting the president -- appears distinctly possible.

Nigeria represents an area in Africa from which China and the U.S. would benefit by working closely together to achieve their shared goal of stabilizing the country and expanding its hydrocarbon industry. Such cooperation, however, has not materialized, and the competing tactics of each state may be pushing Nigeria further into instability.

The path toward stability advocated by the West is characterized by democratic principles, transparency, and debt reduction. Washington has hinged its assistance to Nigeria's government on the continuation of the trends begun by the return to civilian rule in 1999 after 16 years of military rule. The Paris Club of creditor nations recently dropped 60 percent of the country's $30 billion debt in exchange for Abuja paying the remaining $12 billion.

Washington has also made it clear that it does not welcome President Olusegun Obasanjo's desire to change the constitution in order to allow him a third term. Director of National Intelligence John Negroponte, in his 2006 Annual Threat Assessment, warned a third term in Nigeria could lead to "major turmoil and conflict" that would lead to a "disruption of oil supply, secessionist moves by regional governments, major refugee flows, and instability elsewhere in West Africa."

In order to help combat the losses to criminal networks, on December 8, 2005, Nigeria and the United States signed a security agreement to jointly patrol the delta region for security assistance. However, Washington's uncertainty about Obasanjo's grip on power and concerns about human rights abuses and corruption led to the delayed implementation of the program. After seeing an opportunity to improve its relationship with the government and fearing that, without security assistance, Nigeria's oil fields could go off-line, China stepped in while the U.S. attempted to tie the program to political change.

The Nigerian vice president told the Financial Times that U.S. cooperation was not "moving as fast as the situation is unfolding." Instead, Nigeria will obtain patrol boats from China to protect oil installations in the Niger Delta. China's main concern is to ensure the necessary political stability to keep Nigeria's oil pumping; it is not concerned what face this stability takes, whereas it is Washington's belief that democracy and transparent market economies are the best way to ensure stability. It is not clear whether the Chinese plan will help to bring the missing 500,000 bpd of oil back to the market in the Niger Delta, or if it will only ensure more violence in the chronically unstable region.

Conclusion

With instability in other oil-producing regions, the rising energy demands of China and India, and the approaching maturity of major oil fields, Africa's hydrocarbons are an increasingly attractive resource. Competition for these resources, mostly between Washington and Beijing, will play an important role in determining the future of the continent. Divergent political philosophies between the world's two largest oil importers have raised the stakes in the competition. The West has seen its influence in Africa repeatedly challenged by China and India.

Beijing has been consistently willing to aid resource-rich states that the West is attempting to marginalize and pressure for political change. There are limits, however, to China's willingness to frustrate the West's agenda. For example, China has allowed the U.N. Security Council to pass several resolutions condemning the government in Sudan for its actions in the Darfur region, although Beijing has also played a role in ensuring that these resolutions do not lead to any substantive measures.

While competition is natural between the U.S. and China in the energy sector, both states recognize that cooperation in some areas would be mutually beneficial. The chair of the U.S. Senate Foreign Relations Committee, Richard Lugar, said last week that it was crucial for Washington to broaden its cooperation with China and India in order to prepare for disruptions in oil supply. Qin Gang, China's foreign ministry spokesperson, responded by stating, "China stands ready to cooperate with the U.S. and other countries…on the basis of equality and mutual benefit."

Cooperation is unlikely to dominate the relationship between the West and China in Africa in the midterm, as the competition to secure access to hydrocarbons increases. The U.S., U.K., and France still account for 70 percent of foreign direct investment in Africa, according to the Council on Foreign Relations, and U.S. oil companies still lead in offshore oil extraction technology. China's advantage is that it is willing to invest in countries off-limits to many multinational corporations, and its state-owned companies can afford to invest in Africa at a loss in order to better Beijing's positioning. The remainder of this decade is likely to see great changes in Africa as a result of the competition between the West and Asia for energy security.

Report Drafted By:
Adam Wolfe

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